The manufacturing sector unexpectedly strengthed in the most recent survey from the Federal Reserve Bank of Richmond.
The Richmond Fed’s survey–which covers manufacturing businesses in the District of Columbia, Maryland, North Carolina, South Carolina, Virginia, and most of West Virginia–showed renewed strength in shipments, new orders, and employment. Manufacturing firms also reported an increase in the backlog of orders and improved local business conditions.
The Richmond Fed composite index rose from −9 in September to 8 in October. Economists had expected it to hold steady at the negative reading, the bank said on Tuesday. The October result was so good it surpassed even the upper range of estimates of economists surveyed by Econoday.
The report hints at a possible rebound for the factory sector. Sluggishness in manufacturing this year has often been used as a cudgel against the Trump administration’s trade policies, so the reacceleration of growth would be a major boon to proponents of taking a tough stance with China and raising tariffs.
Manufacturers were optimistic that conditions would continue to improve in the next six months, seeing both employment and wages continuing to expand.
There was little sign of inflation in the report. The growth rates of both prices paid by manufacturers and prices received declined. The prices paid increases continue to outpace the prices received, suggesting that manufacturing businesses are not passing along higher costs to consumers.
Manufacturers also said they expect the growth of future prices–both paid and received–to slow further in the near future. That might provide some reassurance to inflation hawks on the Federal Reserve’s board that future rate cuts are unlikely to push inflation too high.
Manufacturers said they struggled to find workers with the necessary skills in October and expected this difficulty to persist in the coming months. This is a negative in the survey but it is good news for U.S. workers and the broader economy since a tight labor market can drive up wages and force companies to invest more in both training and technology to increase productivity.
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